Wednesday, 01 June 2011 08:49

Nokia Is The Latest Company To Experience The Margin Compression I Promised Android Will Deliver To All In The Sector

From Mashable: Nokia’s Freefall Continues

Competition from Apple and Google has prompted Nokia to downgrade its second-quarter sales projections, sending its stock price down as much as 13% Tuesday morning.

Nokia released a statement Tuesday warning net sales for its devices and services unit will be “substantially” lower than the previous estimate of €6.1 billion to €6.6 billion ($8.8 billion to $9.5 billion). The shortfall was blamed on lower average selling prices and decreased volumes of handset sales.

Nokia’s warning comes as the company increasingly finds itself losing market share to Apple’s iOS-based smartphones and models based on Google’s Android OS. Android overtook Symbian, Nokia’s OS, as the most popular smartphone platform in the fourth quarter of 2010, according to researcher Canalys.

This is actually just the beginning for Nokia. The competition is starting to truly intensify. I explained yesterday that Apple came up with an innovative idea in 2001 to reinvent staid matured products in minimalist, easy to use, sexy fashion. They wrapped the products in a profitable ecosytem designed to build consumer lock-in and to create a barrier to entry to competitors. For some obscene reason having to do with big companies making so much money that they don't realize threats until the lunch money has already been confiscated, Apple did not have any credible challenges to this methodology for 7 years until Google bought Android. From that point on, Google enabled the famed BCG-practiced "core competency"  phenomenon, as excerpted from Wikipedia:

core competency is a specific factor that a business sees as being central to the way it, or its employees, works. It fulfills three key criteria:

 

    1. It is not easy for competitors to imitate.
    2. It can be leveraged widely to many products and markets.
    3. It must contribute to the end consumer's experienced benefits.

A core competency can take various forms, including technical/subject matter know-how, a reliable process and/or close relationships with customers and suppliers.[1] It may also include product development or culture, such as employee dedication.

Core competencies are particular strengths relative to other organizations in the industry which provide the fundamental basis for the provision of added value. Core competencies are the collective learning in organizations, and involve how to coordinate diverse production skills and integrate multiple streams of technologies. It is communication, an involvement and a deep commitment to working across organizational boundaries. Few companies are likely to build world leadership in more than five or six fundamental competencies.

You see, Google's Android has allowed hardware vendors to outsource what they apparently sucked at doing in the first place which resulted in Apple literally walking away with virtually all of the profits of several industries. The various aspects outsourced? OS and application development, cloud services, GUI and ecosystems. The outcome was these hardware manufacturers and vendors focusing on what they do best, their "Core Competencies". It has actually turned out to be quite the synergistic meld, for the products that are being released are covering a decade development and competitive exchange in a matter of quarter! This is as close to a free ride as consumers can get, but the producers are hacking each other to death in terms of margins - and the battle is just beginning.

I warned readers of this last year, in detail. Some of the more recent articles attempted to drive the point home. Last week, I wrote New Taiwanese Tablets Show What So Few Have Suspected: Apple’s iPad 2 Is An Expensive Toy!, as excerpted:

Several months ago, amid all of the hoopla of the iPad 2 launch, I illustrated that, although Apple will sell a lot of tablets, those sales will come at increasing decreasing margins. Those who have not read it or do not follow the logic are recommended to reference Competition Heats Up In The Mobile Computing Space On Many Fronts – Prices Driven Down Once Again By The Big Players and more importantly Steve Jobs Calls End Of the PC, We Call The End Of The Fat Margin Tablet – Including The Pretty iPad, With Proof! and The Tablet Pricing Wars Have Commenced, Targeting Apple’s iPad 2 Which Is Not Even For Sale Yet…

Yesterday, I penned "Google’s Excellent Execution On The Android Platform Goads S.E. Asian Manufacturers Into Low Margin Innovation War!" and showed some of the amazing innovation (and I mean truly innovative, much more so than what we have seen come out in the last two years) coming from the hardware vendors in S.E. Asia. The amazing thing is, each of these innovative products are coming at either similar or LOWER price points than both the previous iteration and that of the competition! I go through this exercise to demonstrate that the Nokia/MSFT combo is at significant risk for complete failure. Microsoft has one of the greatest tech patent portfolios on this planet and makes more money from licensing this out to Android vendors than it does from its own OS. That is a temporary thing though, for Android is evolving so fast that it may very well mature its homegrown brew of services and APIs (think gmail/Google Docs) to replace that which MSFT licenses.

Of course, MSFT/Nokia has two major advantages that a smaller, faster, more entrepeneurial company would have capitalized on already and took over the mobile computing space. These advantages are Office compatibility and Xbox/Xbox live. In the enterprise, consumer productivity, and gaming space, Microsoft is literally the king. Nokia is one of the, if not the, best phone hardware manufacturers in the business, but management that is stuck in the previous tech paradigm just does not get it. You must move faster than just very fast, and you must press your strategic advantages YESTERDAY, not just immediately. Ask Google, who is developing Android at the fastest rate that I have every seen anything in the industry develop. It is this development speed that may very well put MSFT's key advantages at risk. The new games for the Tegra 3 quad core SOC and 12 core graphics chips rival that of today's consoles. They are being released in the next quarter, not years from now. The performance of the included office suite for the Asus Transformer in combination with a browser that allows me to make blog posts (the iPad and the 2.x series Androids would not) has actually allowed me to sever ties with all MSFT products on the road and become much more portable with a 1.5 lbs device (2.5 lbs with keyboard) that literally has a 24 hour battery life! This is coming from a man whose shop is based in, and staunched in MSFT products!

If Microsoft waits until the launch of the Ice Cream Sandwich products to deliver on its new partnershipt (which it announced it has done) and later next year with Windows 8 tablets, it may have very well lost its opportunity to capitalize on its kingdom. The same goes for Intel, who has allowed ARM/Invidia/Qualcomm et. al. to become much too entrenched. It appears that the power/energy consumed/price ratio of the new Kal-el devices may allow power users such as myself to sidestep Wintel in full, including the very expesnive (relative to what's offered on Android) licensing fees for the OS and associated apps). When was the last time you paid $120 for an OS and $400 for a productivity suite?

I have been proven correct in my warnings on RIM from last year, whose margins and share prices are collapsing in real time: Blackberries Getting Blacked Out, Imitate Amateur Base Jumpers Sans Parachute! Friday, April 29th, 2011

I have warned on Apple: “Is The Evidence For An Apple Margin Collapse Now Incontrovertible?“and "I Absolutely Dare Anyone To Read This And Still Not Consider The Probability (Not Possibility) Of Apple Suffering From Margin Compression".

And for those who believe that no one saw Android's ascendance, simply peruse my archives where drew a very clear picture of Google winning this space.

New subscriber material available for immediate download: File Icon Apple – Competition and Cost Structure. I urge all professional and instutional subscribers to contact me directly if you have any questions or comments regarding this research and analysis. I am available via phone or email.

Also of interest:

Last modified on Monday, 11 July 2011 09:09
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